CWEG Chairman Hou Feng Invited to the Seminar on the New Era of Public Private Partnership Legislation: To Help the PPP Industry Develops in a Regulated and Efficient Way

On the afternoon of May 28, 2018, the Seminar on the New Era of Public Private Partnership Legislation hosted by the Chinese Academy of PPP Governance of the Central University of Finance and Economics (CUFE), and co-organized by Zhong Lun (Shanghai) Law Firm and the National Social Science Fund’s Major Project of “PPP Legislation Research” kicked off in the Central University of Finance and Economics. Over 50 representatives from government agencies, academia, the private sector and intermediary consulting agencies attended. 


   Zhao Lifen, former Vice President of the CUFE and Director of the CUFE Teaching Committee, said in her address that, since the Third Plenary Session of the 18th CPC Central Committee, under the strong guidance of national policies, the PPP model has entered a new stage of rapid development, becoming an important instrument supporting China’s new urbanism, improving the level of public services and effectively increasing people’s sense of gain, making it a crucial institutional foundation for “comprehensively building a moderately prosperous society”. How to summarize the PPP development experience in the past three years, respond to the needs of all sectors of society for improved public services, standardize the PPP industry, and reduce the government’s debt risk, is a big problem faced by us. At such an important point in time, this seminar brought together representatives from government agencies, academia, the private sector and intermediary consulting agencies to discuss on how to develop PPP in a regulated, transparent and steady way for the long run. The CUFE, which develops college disciplines in alignment with the interdisciplinary characteristic of PPP, is willing to work with all sectors of society to improve PPP laws and regulations and promote the establishment of a modern fiscal system.

  Long Xin, member of the Department of Integrated Services, the Finance Department of the Ministry of Justice, introduced the background and progress of PPP legislation, saying that one of its important characteristics is attaching great importance to democratized and scientized legislation. On July 21, 2017, the Regulations for Public-Private Partnerships in the Infrastructure and Public Services Sectors (Draft for Comment) was issued and disclosed to relevant departments and the public. A total of 7000+ pieces of feedback were received, sorted out and finally reflected in the revision. Since 2017 when PPP has entered a new stage of rational regulation and deepened oversight, priority has been given to preventing and defusing major risks by the CPC Central Committee and the State Council, and a series of documents for regulating local government debt issuance and financing have also been circulated by relevant department under the State Council. Among competent legislative departments and relevant functional departments, several meetings have been convened since 2018, in order to study how to implement the guiding ideology of preventing PPP risks and standardizing PPP development, and to resolve key issues regarding PPP legislation. This seminar sets its agenda partly based on these key issues, and hopes to further improve the Regulations for Public-Private Partnerships in the Infrastructure and Public Services Sectors (Draft for Comment) through gathering constructive suggestions from experts, so as to finalize the PPP legislation efficiently in accordance with the requirements stipulated by the Central Leading Group for Comprehensively Deepening Reforms and the State Council in their work plans, while also ensuring high-quality PPP legislation construction.

  In view of the problems, trends and solutions facing PPP development in the new era and under the new situation, Jiao Xiaoping, Deputy Director of the China PPP Center under the Ministry of Finance, revealed in his speech that, on one hand, the PPP reform beginning 2014 has effectively improved the provision of public goods and promoted the modernization of China""s governance system and capacity; and on the other hand, the problem of generalization and alienation of PPP and its likely impact on local government""s payment ability, urgently need to be solved by improving both the quality and efficiency of PPP reform, so as to get PPP back on track towards standardized and efficient development. 

The seminar was focused on four par

Part 1: PPP Legislation in the New Era

In this part of discussion, Professor Yu An at Tsinghua University, CWEG Chairman Hou Feng, Song Yiwu, former Deputy Director of Jiangsu Provincial Financial Department, Professor Wen Laicheng at the Central University of Finance and Economics, and Associate Professor Zhang Xiaoping at the Central University of Finance and Economics respectively delivered speeches regarding PPP risk prevention, PPP development from the perspective of enterprises, capacity building of the private partner, consortium bidding for PPP contracts, government expenditure management, and PPP project oversight & management, etc.



     
In view of the problems, trends and solutions facing PPP development in the new era and under the new situation, Jiao Xiaoping, Deputy Director of the China PPP Center under the Ministry of Finance, revealed in his speech that, on one hand, the PPP reform beginning 2014 has effectively improved the provision of public goods and promoted the modernization of China""s governance system and capacity; and on the other hand, the problem of generalization and alienation of PPP and its likely impact on local government""s payment ability, urgently need to be solved by improving both the quality and efficiency of PPP reform, so as to get PPP back on track towards standardized and efficient development. 
The seminar was focused on four parts.
Part 1: PPP Legislation in the New Era
In this part of discussion, Professor Yu An at Tsinghua University, CWEG Chairman Hou Feng, Song Yiwu, former Deputy Director of Jiangsu Provincial Financial Department, Professor Wen Laicheng at the Central University of Finance and Economics, and Associate Professor Zhang Xiaoping at the Central University of Finance and Economics respectively delivered speeches regarding PPP risk prevention, PPP development from the perspective of enterprises, capacity building of the private partner, consortium bidding for PPP contracts, government expenditure management, and PPP project oversight & management, etc.
In his speech, CWEG Chairman Hou Feng said, “It is a great honor for me to attend the seminar and share our group’s PPP experience in the era calling for high-quality and real PPPs. Over the years, our group has been playing a pioneer role in implementing a portfolio of PPP projects at a low cost during the entire period, and has achieved satisfactory results, particularly in the context that environmental protection industry is turning into a ‘Red Ocean’ - a saturated market with established competition that will lead to destruction. In view of the development course of PPP and problems occurred last year such as the “Red Ocean”, we put forward the following suggestions:
1. We should clarify stewardship and liability in a PPP project.
  The competent department of each and every water environment management PPP project varies at the municipal level, which may be the environmental protection bureau, or the urban construction department, leading to overlapping project management. Therefore, a 10% limit in fiscal expenditure on PPP projects is set, in order to prevent the government from excessive debt. However, as a consequence of overlapping management and information asymmetry, the governments at some cities have exceeded, or even severely surpassed this limit. Meanwhile, unclear and unclarified stewardship will result in the absence of a steward responsible for process oversight and quality assessment of PPP projects that may last for 30 years, which will directly affect the service quality.
2. We should encourage technological innovation, and define the boundary of technological innovation achievements and the way that the private party should share such achievements with the government. 
  PPP is a supply-side reform that helps innovate the public service industry to improve both the quality and efficiency and reduce costs for the entire project period. However, if the private party doesn’t conduct technological innovation, it is just a model that changes to another form, and the governments, especially those in economically developed areas, would rather provide public services by themselves. Only by providing high-quality and efficient services at a low cost through innovation can the private party really help motivate economically developed areas to carry out PPP projects. 
Hence, the PPP legislation makers should contemplate how to guide and encourage technological innovation of the private party, how to get national support for these professional companies, and how to share the achievements of technological innovation with the government.
3. A good relationship between the government and enterprise, people and financial institution should be established.
  A PPP project usually has a long period of 10 years to 30 years, during which financial fluctuations will definitely occur. This is particularly true to traditional industries which are characterized by low profits and high operating costs, and thus are highly vulnerable. How to ensure reasonable profits for enterprises during financial fluctuations will be a major problem facing the formulation of PPP legislation.
I quite agree with what Deputy Director Jiao Xiaoping said just now. In fact, in the public service industry, when it comes to environmental issues, people and enterprise are both the producers and beneficiaries of environmental goods. So people should be entitled to know, participate in and oversee the implementation of a PPP project.
4. Fiscal subsidy should be granted in a well targeted manner.
  In the context that cities in the Middle and Upper Reaches of the Yangtze River are financially weak, and they impose higher requirements for environmental protection, leading to costly investment, operation and maintenance, it is hoped that China can increase efforts in substituting subsidies with rewards, so as to empower and motivate those financially weak and environmentally degraded cities to carry out environmental management. 
5. Fiscal subsidy should go to project operation, rather than construction.
  It is suggested that the funds used to reward construction should go to project operation (payment by the government for public services), which is not only conducive to performance appraisal and pay-for-performance, but also can enhance confidence of the private participant, so that the guiding role of state funds will be amplified in a more efficient and significant way.
6. Since the implementation of PPP project is a decades-long process, a big data-driven platform for continuous monitoring and statistics should be built so as to ensure the continuity, transparency and controllability of PPP projects.
Part 2: Definition and Applicability of PPP
  Wang Dongwei, Partner of Grandall Law Firm, Zhou Lanping, Partner of Zhong Lun (Shanghai) Law Firm, Li Dejian, Director at the Finance Bureau of Ningbo, Zhou Qin, Vice President of China International Economic Consultants, Wang Yujie, Senior Director at the Legal Department of Shanghai Construction Group (SCG), Li Jingyi, Chairman and Senior Vice President at JUMBO Consulting, Wan Jie, Deputy director of the PPP Center of Henan Provincial Finance Department, and Tang Mingwang, Director of the PPP center of E20 Research Institute, etc. delivered keynote speeches and exchanged views on such issues as eligibility of the government, responsibility of the private party, applicability of PPPs, legal status of SPV (Special Purpose Vehicle), and establishment of a positive list or a negative list.